One issue that repeatedly comes up is whether an employer may adopt a “use it or lose it” vacation day policy. This usually takes the form of a policy by which the employer states that for each year worked, employees a certain number of days of paid vacation. Sometimes, the employer builds into that policy a statement that vacation days which have accrued, but which have not been used by the end of the calendar year, will be forfeited. This is against the law: Vacation days that you have accrued are days that have been earned and are part of your compensation. They are, therefore, wages, as defined by Labor Code section 200. To compel a worker to give up a vacation day is the same, in the eyes of the law, as forcing a worker to repay wages to his or her employer. Apart from being unfair, this is effectively a garnishment of wages without judicial process which is in violation not only of the spirit of the entire Labor Code, but also specifically violates Code of Civil Procedure section 487.020(c). See also Phillips v. Gemini Moving Specialists (1998) 63 Cal.App.4th 563, 572. : Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 779 (vacation pay is simply a form of deferred compensation). In sum, “use it or lose it” policies are illegal.
That being said, an employer is not obligated to provide vacation days as part of a compensation agreement. When an employee and employer enter into an employment relationship, an agreement arises: the employee will perform services in the future in exchange for compensation. If vacation days are offered as part of that compensation package, they may not be withheld. However, some employers do not offer vacation pay as part of their package of benefits. This is not unlawful, but is rare, as it almost guarantees a very high turnover of personnel. Vacation includes “floating vacation days,” as well as personal time off (PTO). Also, an employer may “cap” the amount of accrued vacation days so long as the extra days accrued are “bought out” by the employer in lieu of providing a day off